Could a supply-house vendor buy construction materials for resale and sell them tax-free directly to a qualifying church?

Subject

Sale of Construction Materials to Tax Exempt Entity

Plain-English summary

The proposed direct sale of construction materials to the religious institution was exempt from Florida sales tax. The supply-house vendor would buy the materials for resale, then sell them directly to the church. The church would pay the vendor, receive title and possession when the materials reached the construction site, and bear the risk of theft or loss after purchase.

The contractor could order and accept delivery on the church's behalf, but it would never take title, pay the vendor, or bear the risk of loss. The vendor still had documentation duties: it needed a completed resale certificate for its own purchases and the church's blanket exemption certificate for the exempt sale.

What this means for you

An exempt organization's construction project did not automatically exempt a contractor's material purchases. The Department approved this structure because the exempt church itself was the direct purchaser and payer and the contractor never became the owner or consumer of the materials.

Common questions

Q: Could the vendor buy the materials without tax? Yes, if it gave its suppliers the required resale certificate.

Q: Could the church buy the materials without tax? Yes, if it paid the vendor directly and provided its blanket exemption certificate.

Q: Did contractor involvement destroy the exemption? No. The contractor could place orders and accept delivery as the church's agent, but could not take title or provide consideration for the materials.

Citations and references

• Fla. Admin. Code r. 12A-1.001(3)(a) — direct sales to qualifying religious institutions
• Fla. Admin. Code r. 12A-1.038(1), (3) — resale and exemption certificates
• Fla. Admin. Code r. 12A-1.039 — blanket certificate form
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 93A-075

Original ruling text

Dec 09, 1993

Re: TAA 93A-075
Sales and Use Tax - Sale of Construction Materials to Tax
Exempt Entity
Rules 12A-1.001(3)(a), and 12A-1.038(1), (3), F.A.C.

Dear :

This is in response to your letters of October 4, 1993, and
November 5, 1993, in which you request, on behalf of your
client, XXX, (hereinafter, Taxpayer) the issuance of a Technical
Assistance Advisement, regarding the application of sales and
use tax to construction materials purchased by Taxpayer for
resale to a religious institution, the XXX, a XXX (hereinafter,
Church). This response to your request constitutes a Technical
Assistance Advisement under Chapter 12-11, F.A.C., and is issued
to you under the authority of s. 213.22, F.S.

FACTS

As ascertained from your letters, an unexecuted proposed
document entitled "Materials Purchase Agreement," and a "Special
Conditions to Material Purchase/Payment" submitted for review,
the following conclusions of fact have been reached.

The parties in this proposed transaction are:

Taxpayer, who will act as the "supply house" vendor

through which contractors and subcontractors will be
required by the Church to place all orders for construction
materials.
-

Church is the owner of the construction site. Church

will enter into the proposed contract with Taxpayer to
purchase all construction materials from Taxpayer, as
requested by the contractor and subcontractor(s), using the
Church's purchase order.
-

Contractor or General Contractor is the entity which

has contracted with the Church to undertake the
construction project for the Church.

-

Subcontractor is a contractor who takes a portion of

the contract for the (general) contractor.

Taxpayer will enter into a contract with Church to act as a
supply house for Church's renovation project. The contract will
require Taxpayer to purchase construction materials and sell
these materials directly to Church, as directed by Church.

The contract will also require Church to designate Taxpayer
as its authorized vendor of materials, thereby requiring the
contractor and subcontractor(s) to order the construction
materials for the project from Taxpayer. Taxpayer will provide
Church with specifications relating to the purchase and payment
of materials that it will furnish to Church, and Church will be
required to include these specifications in the supplementary
conditions of its contract with the general contractor.

At the time of purchase, Taxpayer will provide the material
vendor(s) with a blanket resale certificate. Taxpayer will be
invoiced by the material vendor(s), and will remit to the
vendor(s) payment due upon receipt of the Church's payment for
such construction materials. Taxpayer will obtain title and
possession of the materials from the vendor(s) and be
responsible for the delivery of these materials to the
construction site.

Title to and possession of the materials will transfer
directly from Taxpayer to Church upon delivery of those
materials to the construction site. Although the contractor may
accept the materials on behalf of Church, at no time will title
to these materials vest in the contractor, nor will the
contractor provide any consideration to Taxpayer or to the
vendor(s) for these materials. The contractor will obtain a
warranty bond to protect against manufacturer defects in
workmanship; however, this bond will not protect against theft
or loss of the materials after purchase. Therefore the risk of
loss regarding the materials is on Taxpayer or Church at all
times, never on the contractor.

RELEVANT PROVISIONS

The following provisions of the Florida Administrative Code
(F.A.C.), are pertinent to the issues presented by the
aforementioned transaction.

Rule 12A-1.001, F.A.C., provides:
"(3) RELIGIOUS, EDUCATIONAL, CHARITABLE, VETERANS' AND
SCIENTIFIC ORGANIZATIONS, FEDERAL AND STATE CHARTERED
CREDIT UNIONS, FLORIDA RETIRED EDUCATORS ASSOCIATION AND
LOCAL CHAPTERS, AND ORGANIZATIONS PROVIDING SPECIAL
EDUCATIONAL AND SOCIAL BENEFITS TO MINORS.
"(a)A sale or lease directly to... nonprofit religious...
institutions,... for use in the course of their
customary... nonprofit... religious... activities,... are
exempt from the tax imposed by Part I, Chapter 212, F.S....
However, such institutions or organizations desiring to
qualify for the exemption must obtain from the Department
of Revenue a consumer's certificate of exemption, and
payment must be made directly to the dealer by the exempt
entity.... This exemption shall not inure to any
transaction otherwise taxable when payment is made by an
exempt entity's employee by any means, including but not
limited to, cash, check, or credit card, when that employee
is subsequently reimbursed by the exempt entity...."

Rule 12A-1.038, F.A.C., provides, in pertinent part, as
follows:

"(1) It is the specific legislative intent that every
sale,... is taxable under Chapter 212, F.S., unless such
sale, admission, use, storage, consumption or rental is
specifically exempt. The exempt status of the transaction
must be established by the dealer. Unless the dealer shall
have taken from the purchaser a certificate to the effect
that the property or service was purchased for resale and
bearing the name and address of the purchaser, the
effective date of the certificate and the number of his
dealer's certificate of registration, or a certificate
bearing the number of his consumer's exemption certificate,
and the effective date of the certificate, the sale shall
be deemed to be a taxable sale at retail...."

"(3) A resale certificate is required from every purchaser
who purchases tangible personal property or service for
resale,.... Otherwise, the dealer will be required to
collect and remit the tax to the Department of Revenue."

DISCUSSION

Florida sales and use tax is an excise tax, levied in the
chain of manufacture and distribution, imposed for exercising
the privilege of selling, using, consuming or renting items of
tangible personal property or services that are taxable in this
state. When tangible personal property is sold at retail, tax
is due and payable based on the sales price and is collectible
by the dealer from the purchaser. However, when such items are
not purchased for sale but are used, consumed, distributed or
stored for use or consumption in this state, tax is due and
payable based on the cost price by such user or consumer. Since
the sale or purchase of real property is not subject to Florida
sales or use tax, tangible personal property which becomes real
property is taxed at the last transaction prior to being
converted into real property.

A party to this proposed transaction is a religious
institution; therefore, the Department must look to Rule 12A1.001(3), F.A.C., supra. This Rule states that sales made
directly to a religious institution are exempt, when payment is
made directly to the dealer by that religious institution.

Therefore, pursuant to Rule 12A-1.001(3), F.A.C., when
Taxpayer, the "supply house" dealer of the construction
materials, sells these materials directly to Church, a religious
institution, such sales are exempt from sales tax. However,
Taxpayer is required to obtain from Church its blanket exemption
certificate as provided in Rule 12A-1.039, F.A.C., in order to
make sales to Church tax exempt.

With regard to Taxpayer's purchase of the construction
materials and supplies, Rule 12A-1.038(1), F.A.C., provides that
a sale is exempt from tax if, at the time of purchase, the
dealer (seller) takes from the purchaser a certificate to the
effect that the property is purchased for resale. The

application of Rule 12A-1.038, F.A.C., to Taxpayer's case,
provides that Taxpayer may purchase the construction materials
for resale to Church, exempt from sales tax liability, insofar
as Taxpayer complies with the requirements of Rule 12A-1.038,
F.A.C.

Rule 12A-1.038(3), F.A.C., provides that a completed resale
certificate is required from every purchaser who purchases
tangible personal property for resale, subject to the provisions
of subsection 12A-1.038(1), F.A.C.; otherwise the selling dealer
will be required to collect and remit the tax to the Department.

The Department does not supply dealers with preprinted
forms which meet the standards of Rule 12A-1.038, F.A.C., and
has therefore promulgated Rule 12A-1.039, F.A.C., providing only
a suggested form for a blanket resale and exemption certificate
that meets the minimum requirements of Rule 12A-1.038, F.A.C.
(A copy of Rules 12A-1.038 and 12A-1.039 is enclosed for your
review).

Please be advised that a blanket resale certificate does
not expire, as this is not a document issued by the Department.
It may continue to be used until the issuer, in this case
Taxpayer, revokes it by written notice to the supplier, or until
such time as the Florida Department of Revenue cancels
Taxpayer's tax registration, should such an event occur.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., which is binding on the Department only
under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. Our response is
based on those facts and the specific situation summarized
above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the
statutes or rules upon which this advice is based may subject
similar future transactions to a different treatment than
expressed in this response.

You are further advised that this response and your request
are public records under Chapter 119, F.S., which are subject to
disclosure to the public under the conditions of s. 213.22, F.S.

Your name, address, and any other details which might lead to
identification of the taxpayer must be deleted by the Department
before disclosure. In an effort to protect the confidentiality
of such information, we request you notify the undersigned in
writing within 15 days of any deletions you wish made to the
request or the response.

Sincerely,

Nydia Men‚ndez
Technical Assistant

NM/pb
Con. #11478